State Bank of India Bonds: Issue of Series 1 lower Tier II bonds and Series 2 lower Tier II

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State Bank of India is issuing bonds of the face value of Rs 10,000 each and in multiples of Rs 10,000 for a total sum of Rs 500 crs with an option to retain oversubscription upto Rs 500 crs making the total issue Rs 1,000 crs.
The issue opens on Monday the18th of October and closes on Monday the 25th of October or earlier. 50% of the issue is reserved for retail where the size of the category is upto Rs 5 lakhs against the normal of Rs 1 lakh. 25% each is reserved for HNI’s and QIB’s.
The salient features of the bond are as follows: -

Options Series 1 Lower Tier II Bonds Series 2 Lower Tier II Bonds
Frequency of Interest Payment Annual Annual
Minimum application Rs 10,000 Rs  10,000
In multiples of  Rs 10,000 Rs  10,000
Face Value of the bond Rs 10,000 Rs  10,000
Issue Price Rs 10,000 Rs  10,000
Coupon % 9.25% per annum 9.5% per annum
Effective yield per annum
a) if call option is exercised 9.25% per annum 9.50% per annum
b) if call not exercised 9.445% per annum 9.598% per annum
Put option There is no put option There is no put option
Call option The bank has a call option in an amount of the principal amount outstanding of the series 1 lower tier II bonds after 5 years following the deemed date of allotment of the series 1 lower tier II bonds, subject to the prior approval of the Reserve Bank of India The bank has a call option in an amount of the principal amount outstanding of the series 2 lower tier II bonds after 10 years following the deemed date of allotment of the series 2 lower tier II bonds, subject to the prior approval of the Reserve Bank of India 
Step up coupon If the bank fails to exercise the call option, the series 1lower tier II bonds will accrue interest at a higher rate being the coupon rate plus 0.50% per annum. The step up option will be exercised only once during the whole life of the instrument in conjunction with the call option If the bank fails to exercise the call option, the series 2 lower tier II bonds will accrue interest at a higher rate being the coupon rate plus 0.50% per annum. The step up option will be exercised only once during the whole life of the instrument in conjunction with the call option
Lock in clause for interest payment or principal amount NIL NIL
Tenor 10 years 15 years
Resemption date 10 years from the date of deemed allotment 15 years from the date of deemed allotment
These bonds are not redeemable at the option of the bondholders or without the prior consent of RBI These bonds are not redeemable at the option of the bondholders or without the prior consent of RBI
Redemption amount Rs 10,000 Rs 10,000
Nature of Indebtedness & ranking in terms of capital adequacy guidelines to be eligible for inclusion in as series 1 lower tier II bonds are fully paid up, unsecured, subordinated to the claims of all other creditors in terms of capital adequacy guidelines to be eligible for inclusion in as series 2 lower tier II bonds are fully paid up, unsecured, subordinated to the claims of all other creditors
Credit Rating CARE "AAA" by CARE and "AAA" Stable by CRISIL CARE "AAA" by CARE and "AAA" Stable by CRISIL

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The beauty of these bonds is that they would be traded on the NSE from day one and looking at the current yield of similar comparable bonds from other issuers should quote at an effective yield of 8.5% to 8.75% assuming current rates of interest. This effectively offers investors an appreciation on listing.

Investors looking to apply must do so on the first day itself as the scheme is on first come first served basis.

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